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USDJPY Breaks Consolidation, Where to Next?

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After six long weeks of consolidation, USDJPY has finally broken free from the wedge pattern that began following the August 24th selloff. During that session, the pair saw a low of 116 but managed to close the day above 118.30.

The thought of going short USDJPY a few months ago would have seemed ill-advised given the uptrend that has been in place since 2011. However the price action since mid August is hinting at the idea that this multi-year rally has come to an end.

A look at the weekly chart shows the potential of such a move.

USDJPY weekly support levels

It should be noted that the wedge in the chart below formed on the back of a four-day selloff that began in mid August, which gave this pattern a bearish connotation from day one. This means that yesterday’s break of support is technically appropriate, so to speak.

That said, the magnitude of yesterday’s break also placed the pair just 50 pips from key support at 118.30, making an entry unfavorable. This level can be seen acting as support and resistance going back to November of 2014. It was also the August 24th closing price during the latest selloff.

We can now see that the bears have managed to push prices below this figure on an intraday basis. However with recent volatility and uncertainty in mind, only a daily close below the level would give us a tradable break.

This gives us a fairly simple plan of attack. The bulls will either manage to push the pair back to former wedge support, new resistance, or they will succumb to selling pressure and allow the pair to close below 118.30.

Either way, we need to gain some distance from support in order to see a favorable opportunity develop.

Summary: Watch for bearish price action on a retest of former wedge support as new resistance. Alternatively, a daily close below 118.30 would have us watching for a selling opportunity as long as the pair holds below the key handle on a closing basis. Key support below 118.30 comes in at 116 and 114.

USDJPY wedge break on the daily chart

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